contemplating the intersection of work, the global economy, and Christian mission

Nov 20, 2008

Prosperity: Poor Governance in a Small Country Trap

The fourth of Paul Collier’s poverty traps in The Bottom Billion is the Poor Governance in a Small Country Trap. Collier writes:

“Excellent governance and economic policies can help the growth process, but there is a ceiling to feasible growth rates at around 10 percent: economies just cannot grow much faster than this no matter what governments do. By contrast, terrible governance and policies can destroy an economy with alarming speed.” (64)

He goes on to observe:

“Good governance and policy help a country to realize its opportunities, but they cannot generate opportunities where none exist, and they cannot defy gravity.” (64)

Governance is especially critical in landlocked, resource poor nations. Where a costal, resource rich country may be able to get along well with less than stellar governance, citizenry in landlocked poor nations are more dependant on government for effective distribution of resources. Furthermore, as we saw earlier, good governance relative to neighbors is one of the few competitive advantages a poor landlocked nation can cultivate.

There is a high correlation of substandard governance and poverty. The problem is that sustained turnarounds in such nations is notoriously difficult to achieve. He makes this sobering observation:

“Overall we find that the probability of a sustained turnaround starting in any year is very low: a mere 1.6 percent. Countries are therefore likely to stay as failing states for a long time. Indeed, from this annual probability we can calculate something called the mathematical expectation, which is the average length of time it takes to get out of being a failing state. It comes out as fifty-nine years.” (71)

Ironically, some the greatest opportunities for turnarounds come on the back end of internal conflicts.

Collier believes that with intelligent and targeted intervention, developed nations can do things that will help shorten the transition time. More on that later. But what this hopefully shows is that good governance is not a silver bullet to eliminating poverty. Even with good governance and high growth rates of 5-10%, it would still take a couple of generations for a nation to emerge from poverty. On the other hand, dumping aid into a country without good governance is futile. It is likely an exercise in lining the pockets of the countries elites. Similarly, opening trade with such a nation will generally result in a bonanza for the wealthy elites with little impact on the masses.

Good governance is a force stabilizing a society so productive forces can take root but it can not drive the growth itself.